Sears 2014 Annual Report Download - page 82

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
82
Interest
Interest expense for years 2014, 2013 and 2012 was as follows:
millions 2014 2013 2012
COMPONENTS OF INTEREST EXPENSE
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 238 $ 193 $ 198
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 21 18
Accretion of self-insurance obligations at net present value . . . . . . . . . . . . . . . . . . . . . . 22 24 34
Accretion of lease obligations at net present value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 17
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 313 $ 254 $ 267
Debt Repurchase Authorization
In 2005, our Finance Committee of the Board of Directors authorized the repurchase, subject to market
conditions and other factors, of up to $500 million of our outstanding indebtedness in open market or privately
negotiated transactions. Our wholly owned finance subsidiary, Sears Roebuck Acceptance Corp. ("SRAC"), has
repurchased $215 million of its outstanding notes. In 2011, Sears Holdings repurchased $10 million of Senior
Secured Notes, recognizing a gain of $2 million. The unused balance of this authorization is $275 million.
Unsecured Commercial Paper
We borrow through the commercial paper markets. At January 31, 2015 and February 1, 2014, we had
outstanding commercial paper borrowings of $2 million and $9 million, respectively. ESL held none of our
commercial paper at January 31, 2015 or February 1, 2014, including any held by Edward S. Lampert. See Note 15
for further discussion of these borrowings.
Secured Short-Term Loan
On September 15, 2014, the Company, through Sears, Sears Development Co. and Kmart Corporation
("Borrowers"), entities wholly-owned and controlled, directly or indirectly by the Company, entered into a $400
million secured short-term loan (the "Loan'") with JPP II, LLC and JPP, LLC (together, the "Lender"), entities
affiliated with ESL. The first $200 million of the Loan was funded at the closing on September 15, 2014 and the
remaining $200 million was funded on September 30, 2014. Proceeds of the Loan were used for general corporate
purposes.
The Loan was originally scheduled to mature on December 31, 2014. As permitted by the Loan agreement, the
Company paid an extension fee equal to 0.5% of the principal amount to extend the maturity date to February 28,
2015. The Loan has an annual base interest rate of 5%. The Borrowers paid an upfront fee of 1.75% of the full
principal amount.
The Loan is guaranteed by the Company and is secured by a first priority lien on certain real properties owned
by the Borrowers. In certain circumstances, the Lender may exercise its reasonable determination to substitute one
or more of the properties with substitute properties. The Loan includes customary representations and covenants,
including with respect to the condition and maintenance of the real property collateral.
The Loan has customary events of default, including (subject to certain materiality thresholds and grace
periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, and
bankruptcy or insolvency proceedings. If there is an event of default, the Lender may declare all or any portion of
the outstanding indebtedness to be immediately due and payable, exercise any rights it might have under any of the
Loan documents (including against the collateral), and instead of the base interest rate, the Borrowers will be
required to pay a default rate equal to the greater of (i) 2.5% in excess of the base interest rate and (ii) the prime rate
plus 1%. The Loan may be prepaid in whole or in part any time prior to maturity, without penalty or premium.